Question

A contract was signed in March for legal work completed by a law firm in April. The client agreed to pay for the completed work in May and the law firm received payment in early June. When should the lawfirm recognize the revenue? March April May June

Answer 1

The law firm should recognize the revenue in April, as that is when the legal work was completed.

Step-by-step explanation:

The law firm should recognize the revenue in April because according to the revenue recognition principle in accrual accounting, revenue is recognized when it is earned, regardless of when the payment is actually received. In this scenario, the legal work was completed in April, so that is when the firm earned the revenue. This principle is part of Generally Accepted Accounting Principles (GAAP), which dictates that the economic event (completing the work) triggers the recognition of revenue.